Emerging Insight: How to customize for small businesses
24 May 2016
Small businesses vary greatly – by type of business, geography, size, risks faced, and ambitions for growth. For this reason, customized insurance products may seem most likely to meet a business’ needs. Yet, with relatively small margins, customization can prove costly. Few insurers can afford sales forces with the time and expertise to explain products with many options to each small business. Furthermore, with little or no experience of insurance, small businesses may be put off by complexity and too much choice.
Customization should therefore be limited. It is most feasible for large segments or at the level of a distribution channel, rather than customization at the individual client level. Insurance providers can, for example, offer a distribution partner a customizable product. However, once the product is defined by the distribution partner, it is standard for all clients of that partner.
This is the approach taken by MicroEnsure. MicroEnsure provides multi-risk insurance services and products to clients of its microcredit lending partners in many African markets. The exact cover is worked out together with each microfinance institution, making sure it meets its needs and those of its clients. A product generally includes a range of the following covers: credit health, death of business owner or up to five employees, permanent disability of owner or up to 5 employees and catastrophic business loss.
Alternatively, an insurance provider might divide its small business clients into a few large segments based on simple metrics, commonly business size or geographical region, and offer a different version of its product to each segment.
Segmentation based on business size is the approach taken by Pacifico. The Peruvian insurer offers multi-risk business insurance products to small businesses, which are distributed through a range of channels, including financial institutions and agents. Covers may include fire, earthquake, natural disaster, robbery, breakdown of machinery and many others, as well as value-added health and legal services. Such covers are combined in several distinct packages, designed according to business size. A more comprehensive package of covers is offered to its largest small business clients, with packages of fewer covers to smaller businesses. So far this has proved a successful strategy, and Pacifico is able to sign up over 3,000 new small business clients a month.
Find out more about insurance for small businesses in our new paper.
Customization should therefore be limited. It is most feasible for large segments or at the level of a distribution channel, rather than customization at the individual client level. Insurance providers can, for example, offer a distribution partner a customizable product. However, once the product is defined by the distribution partner, it is standard for all clients of that partner.
This is the approach taken by MicroEnsure. MicroEnsure provides multi-risk insurance services and products to clients of its microcredit lending partners in many African markets. The exact cover is worked out together with each microfinance institution, making sure it meets its needs and those of its clients. A product generally includes a range of the following covers: credit health, death of business owner or up to five employees, permanent disability of owner or up to 5 employees and catastrophic business loss.
Alternatively, an insurance provider might divide its small business clients into a few large segments based on simple metrics, commonly business size or geographical region, and offer a different version of its product to each segment.
Segmentation based on business size is the approach taken by Pacifico. The Peruvian insurer offers multi-risk business insurance products to small businesses, which are distributed through a range of channels, including financial institutions and agents. Covers may include fire, earthquake, natural disaster, robbery, breakdown of machinery and many others, as well as value-added health and legal services. Such covers are combined in several distinct packages, designed according to business size. A more comprehensive package of covers is offered to its largest small business clients, with packages of fewer covers to smaller businesses. So far this has proved a successful strategy, and Pacifico is able to sign up over 3,000 new small business clients a month.
Find out more about insurance for small businesses in our new paper.